Companies that are small or just starting out can be challenged to meet the high standards and loan requirements set by banks when trying to secure small business financing. Restrictive lending practices often exclude the small business owners and make it hard to obtain capital.
Small businesses no longer need to rely solely on bank loans to meet their financial needs. Securing small business financing from a traditional lender can be tough. So, many small businesses and startups are turning to alternative financing.
Here are some of the little-known alternative financing options for small businesses.
Accounts Receivables & Purchase Order Financing
Creatively structured loans that are tied to outstanding invoices or purchase orders from vendors and clients are great alternatives to banks. Cash can be secured based on outstanding invoices for goods or services sold or they can even be collateralized based on purchase orders that have yet to be filled. Working capital can even be raised on projected or outstanding sales. The loans and terms are then flexibly structured to meet the business owner’s needs.
Merchant Cash Advances
You can get repeated infusions of cash for your business by leveraging your business’s merchant account. The way it works is simple, you get a cash advance on your projected future credit card sales. When a business secures a merchant cash advance, it is tying the loan to future sales and, more specifically, credit card income. The advance involves no set payments but rather sets a percentage of the company’s daily credit card transactions. This type of financing is a way to tie the loan payments directly to the rise and fall of sales making it a little less risky.
You as a small business owner, can post your loan terms and interest rate target on key websites so potential lenders can bid on your loan. It’s a little like an eBay auction but for financing. This financing option does require that you have excellent credit.
Hard Money Loans
A hard money loan often doesn’t take a business owners creditworthiness into consideration at all. Instead, the loan is tied to assets or collateral of the borrower. Hard money loans are usually secured from companies or private investors and may, or may not, make sense for a small business. Any collateral for a loan means a potential to lose that asset should you default on the loan. It can be risky.
Using inventory as collateral allows small businesses to leverage their inventory to gain working capital. How quickly inventory turns over will dictate the loan terms and drive what makes the most sense. If the inventory was purchased more than a year ago, it could present challenges but if the inventory has not been on-hand that long, it might make sense to finance it to secure working capital.
Credit Cards and Revolving Lines of Credit
Unless you as a business owner, have good introductory rates, using credit cards for business financing may not be the best method for raising capital. Revolving lines of credit might offer better terms and options and can help smooth out fluctuating sales or revenue. Either are an option, but business owners should pay careful attention to both the interest rates and the underlying fees with each.
Navigating all the options to determine the best choice can be a challenge, and you may not know how best to proceed. If you’d like to know more about how we can help you get money for your business, call us for a FREE Business Funding Consultation at (800)416-7713.
Rick Anderson @FundingExpert1
Rick Anderson is the CEO and Senior Small Business Funding Specialist with Small Business Money Solutions. A company that helps small business owners and self employed professionals get the financial solutions they need to GROW and thrive. Rick has been in business for over 22 years, and his company has helped 22,485+ small business owners and counting. Rick has also written a book on small business finance entitled 10 Easiest New Money Sources For Business Owners.
Connect with him https://www.linkedin.com/in/RickAndersonSmallBusinessLoans or if you would like to ask him a question, send it to [email protected] If you’d like a FREE ‘Business Funding’ Consultation, call him at (800)416-7713.